Sprint Nextel (NYSE:S) has decided to block both Huawei and ZTE from getting its multi-billion-dollar network modernization project because of mounting national security concerns about the Chinese vendors, according to a report in the Wall Street Journal.

The Journal, citing unnamed sources familiar with the matter, said that Commerce Secretary Gary Locke called Sprint CEO Dan Hesse this past week to discuss the government's concerns about awarding the contract to a Chinese firm, but he did not bring up excluding them from the bidding process.

Hesse told FierceWireless last month that the carrier is hoping to announce a vendor for the project, which includes the deployment of a new multi-mode base station, by year-end. The project is expected to take three years to four years to complete.

The report said that Alcatel-Lucent (NASDAQ:ALU) and Samsung are the two finalists, and that while Sprint had originally planned to award the contract to three vendors, it is now hoping to get lower bids from the finalists (Sprint's target range for the bid is between $5 billion and $7 billion, the report said). Ericsson (NASDAQ:ERIC), which manages Sprint's day-to-day network operations, is also said to have bid for the deal.

The report said Department of Defense officials were worried about the two companies' ties to the Chinese government and military. A group of four U.S. lawmakers sent a letter to the FCC last month explaining potential risks posed by the deployment of Huawei and ZTE's equipment by U.S. carriers. The letter said the two companies could be subject to "significant influence by the Chinese military which may create an opportunity for manipulation of switches, routers, or software embedded in American telecommunications network so that communications can be disrupted, intercepted, tampered with, or purposely misrouted."

Both Huawei and ZTE deny they have links to the Chinese military and have strongly protested characterizations to the contrary. Sprint, Huawei and ZTE all declined to comment, according to the Journal.

The rejection of Huawei is a particularly strong blow to Amerilink Telecom, which has been lobbying the government on Huawei's behalf. The telecom consulting firm, which is based in Sprint's hometown of Overland Park, Kan.--and counts former Sprint executive Kevin Packingham as its CEO--attracted a roster of high-profile government and security luminaries.

Amerilink's board is led by William Owens, who is a former vice chairman of the U.S. Joint Chiefs of Staff and former CEO of Nortel Networks. Amerilink's board members also include former Rep. Richard Gephardt, former World Bank President James Wolfensohn and Gordon England, who served as deputy secretary of defense and homeland security under former President George W. Bush.

Huawei is currently working with Cox Communications on the company's 3G CDMA network, and also is a supplier for Clearwire's (NASDAQ:CLWR) mobile WiMAX network. In September, Huawei unveiled a three-pronged security plan designed to alleviate concerns from operators.

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